"Higher volatility means that investors need to reaffirm their commitment to how their portfolios are positioned so that they do not shift out of their asset allocation for short-lived reasons," Northern Trust Chief Investment Strategist Jim McDonald said. "As developed central banks try to manage investor expectations about the future of monetary policy, we expect uncertainty to remain fairly high."

Looking ahead to what can be expected from main asset classes, Northern Trust forecasts a five-year annualized total return of approximately seven percent for developed stock markets, down slightly from last year's long-term forecast. Emerging stock markets are expected to continue to command a risk premium given valuation differentials and their growth profile.

Fixed income forecasts were revised slightly upwards from last year as interest rates have risen and expectations of further increases look elevated. Northern Trust believes that fixed income markets will continue to be driven heavily by non-fundamental factors such as central bank intervention, as opposed to the more typical drivers of growth and inflation. During this period of uncertainty about monetary policy, Northern Trust expects municipal bonds to remain inexpensive relative to Treasuries as financial market liquidity remains scarce.

"The outlook for fixed income investing is not as dire as some people think," McDonald said. "We expect positive returns from fixed income investments over the next five years and continue to believe bonds will play a critical role in client portfolios."

Political Volatility, Policy Stability  A strong shift to the left or right is not expected, since voter sentiment remains surprisingly constant.

Asset Classes Without Borders  Asset allocation will become less focused on particular countries, with global capital markets and globally diverse companies furthering the case for a global approach to asset allocation. Northern Trust is looking at how individual assets can be combined to provide specific exposures to compensated forms of risk.

Each year, Northern Trust's Capital Market Assumptions Working Group develops a long-term forecast for economic activity and financial market returns that is designed to be "forward looking and historically aware." The group also identifies specific risks that are combined with other portfolio construction tools to annually review and update the firms recommended strategic asset allocations.

The group is composed of senior investment professionals from across Northern Trust globally, including the firm's chief investment officer, chief investment strategist and managing directors of specific asset classes.

About Northern TrustNorthern Trust Corporation (Nasdaq: NTRS) is a leading provider of investment management, asset and fund administration, banking solutions and fiduciary services for corporations, institutions and affluent individuals worldwide. Northern Trust, a financial holding company based in Chicago, has offices in 18 U.S. states and 16 international locations in North America, Europe, the Middle East and the Asia-Pacific region. As of June 30, 2013, Northern Trust had assets under custody of US$5.0 trillion, and assets under investment management of US$803.0 billion. For more than 120 years, Northern Trust has earned distinction as an industry leader in combining exceptional service and expertise with innovative products and technology. For more information, visit www.northerntrust.com or follow us on Twitter @NorthernTrust.